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Sales of compact, point-and-shoot cameras had long since gone off a cliff, steeply falling opposite the astronomical rise of capable smartphone cameras. But now, a disaster scenario was truly beginning to show, as sales of single lens reflex cameras (SLRs) also began to exhibit a decline for the very first time.

These are the cameras of photo enthusiasts: people who cannot imagine compromising any aspect of their picture’s quality, care about have absolute control over exposure and might even get a little giddy about saving up for a better lens, a brighter piece of “glass.”

For Canon Inc. and Nikon Corp., these people were their high-margin growth customer. With half a century of dominance in the film camera business, the stalwart Japanese camera giants had traded on this reputation to ride the digital wave. A boon for SLR sales. It was long believed that the clear inferiority of smartphone pictures would ensure the safety of this stronghold.

Now, Nikon shares are down 33% on the Tokyo Stock Exchange so far this year, and Canon, which at least has other business lines to fall back on, is down almost 7%. Smartphones — especially today’s batch of modern, capable, high-resolution shooters — have proven more of a threat, harder to emulate, and even harder to beat, than anyone could have thought.

Instead, it is Apple Inc., Samsung Electronics Co. Ltd., Google Inc. and even Microsoft Corp.’s Nokia that, have become consumer photography’s new guard for the typical shooter and even the avid enthusiast.

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“You’re talking about a 10-15% decline [in DSLR shipments] all over the world. Which is kind of shocking because that market’s been growing double digits for almost ten years,” said Christopher Chute, market intelligence firm IDC’s research director of worldwide digital imaging.

According to Mr. Chute’s research, the rate of market decline is accelerating each quarter — with global shipments of all digital cameras falling 36.2% to 19.2 million units in the second quarter alone, and interchangeable lens cameras, which include DSLRs, falling 10.9% to just 4 million units shipped. Canon has sold 23% less cameras than a year earlier, Nikon is down 18.2%, and Sony and Fujifilm are each off about 35%.

“Nikon recently said they have a five year plan to address this. And my view is, that five year plan should have come out five years ago,” Mr. Chute said.

“They’re not going to be around in five years.”

While device manufacturers have been putting cameras in phones for some time — dating back to some of the earliest personal digital assistants from the now-defunct Palm Inc., and the puny, grainy sensors included in many of Motorola Inc.’s iconic flip phones — most industry watchers credit Apple with starting the cameraphone arms race in earnest. The moment when smartphones began really eating into compact camera sales came with the launch of the iPhone 4 and iPhone 4S — some of the first and most popular smartphones to use what is called a backside-illuminated sensor. The technology, actually manufactured by Sony Corp., dramatically increased the amount of light that could be captured by a camera sensor in a smartphone-sized device, and resulted in pictures that were brighter, colours more accurate, and the quality on-par with that of a dedicated point-and-shoot. Other innovations from competing manufacturers have since followed.

But what of interchangeable lens cameras and digital SLRs? Even today, smartphones largely can’t compete with Canon and Nikon’s prosumer and professional level shooters — at least, not where hardware capabilities and picture quality are concerned. Right?

As it turns out, they don’t have to. When it comes to image quality, the real problem is that consumers no longer care.

You’re talking about a 10-15% decline [in DSLR shipments] all over the world

“It’s not about optics engineers and image scientists that much anymore,” Mr. Chute said. “The focus on hardware, which has driven [Canon and Nikon] to success over fifty years – the ground has shifted underneath them and it’s all software.”

Some of the most lauded features in Apple’s new iPhone 5S, for example, are balance between cutting edge hardware but also smartly-written software, with a continuous 10 frame per second (fps) burst mode, slow motion video capture and “intelligent software algorithms to adjust the flash intensity and colour temperature”, all newly introduced.

At last year’s BlackBerry World conference in Orlando, Fla., the struggling Canadian smartphone manufacturer also unveiled a software upgrade to its previously lacklustre cameras — a new feature called Time Shift that would help users take better pictures on future BlackBerry phones by “scrubbing” or shifting through photos intelligently captured in the seconds before and after the shutter button was actually pressed.

Nokia, with its eye-opening 41 Megapixel smartphone camera, actually relies heavily on software algorithms to down-sample and resize the gargantuan images the sensor on its new Lumia 1020 smartphone captures, into smaller, more standard-sized images that boast perhaps the best quality found in a camera phone.

And this is to say nothing of most smartphones’ superior wireless connectivity, social network sharing, mobile image editing and manipulation, and cloud-based photo backup – features that have wooed countless consumers over the offline, relatively clunky, capture-centric operation of point-and-shoot cameras and, now, DSLRs.

Nowadays, claims Apple, “more photos are taken with the iPhone than any other camera.” It’s the nightmare scenario that JP Morgan’s Nikon analysts have warned of – “steep declines in DSLR or digital compact camera prices owing to increased competition and/or inventory consolidation.”

At Nikon, 78% of its revenue comes from camera sales.

Sony, to its credit, is trying to have the best of both worlds with its curious new line of lens cameras – essentially small tubes of glass that can be clipped onto any Android smartphone or iPhone, like a DSLR lens taped to a thin touchscreen slab. In theory, such a setup combines the software and sharing prowess of a smartphone with the superior photo quality of a dedicated image sensor and lens. But in practice, the niche hardware simply turns the host smartphone into a device that is still as cumbersome as cameras that came before.

If today’s smartphones were truly competing on the merits of hardware and image quality, then the DSLR’s decline would likely be less pronounced. However, there has been a reversal in consumer perception, concluded IDC: “image quality as a primary value is now second to connectivity to Web services like Facebook.”

Rather, it’s that sweet spot between form factor, image quality, and software connectivity that consumers want – and though Canon and Nikon’s high-end cameras and DSLRs still have a niche, with that wider market of social-savvy shooters, they’ll be hard-pressed to keep up.